Parliamentary committee keeps arms deal offsets report secret

08 March 2012 by defenceWeb

Parliament’s trade and industry committee has voted to keep secret a report that details offsets under the 1999 arms deal.

The report allegedly shows that German arms company Ferrostaal only invested €63 million and not €3 billion as promised in exchange for the purchase of three submarines.

Offsets were required investments in industrial plants in South Africa and were a condition of winning contracts under the Strategic Defence Package aka 'arms deal' which, according to Minister of Defence and Military Veterans, Lindiwe Sisulu is now estimated to cost around R47 billion.

According to international audit firm Debevoise & Plimption (D&P) – Ferrostaal had made a real investment in the South African economy of only €63 million. The D&P audit, commissioned by Ferrostaal itself, was extensively reported in the media last year. The audit also highlighted more than R300 million in “questionable payments” made to fixers in pursuit of contracts in the arms deal.

Ferrostaal’s former management – removed from office in the midst of bribery scandals – are facing criminal charges in German courts for allegedly irregular activities in other corporate dealings.

David Maynier, shadow minister of defence for the Democratic Alliance, introduced the leaked report in February and asked for answers to its contents.

Yesterday ANC members in the committee and some COPE members outvoted DA MPs to keep the offsets report secret. Joan Fubbs, chair of the committee, said that, “if we release that report, we would not only be in contravention of common law, but international law too.” The committee said that the report was subject to protection under attorney-client privilege and that its contents could not be verified.

Last week parliamentary legal advisor Carin van der Merwe recommended that the committee only reveal the contents of the report once permission had been received from Ferrostaal: “until such time as the committee has received the permission to use the report and can thus determine the value of statements contained in the report, it is not recommended that the Department of Trade and Industry be required to answer to the report”.

"The department has consistently avoided answering questions about how much has actually been invested as part of the National Industrial Participation Programme, and why there is such a significant discrepancy between the reported size of investments, and actual investments," DA trade and industry spokesman James Wilmot said.

"This decision amounts to an attempt by the portfolio committee to protect the department from real accountability on an issue of monumental public interest," he said.

Trade and industry spokesman Sidwell Medupe said the department had consistently stated that the €2.8 billion referred to Ferrostaal’s total offset obligations and not the amount it was expected to invest.

"This €2.8bn is broken up into sales (exports and local), credits and investment credits that Ferrostaal was expected to have promoted. Credits are calculated as the actual sales with multipliers.

Maynier earlier said that companies bidding in the arms deal promised 65 000 jobs during negotiations in 1999, as well as €110 billion in investment. However, the department reported that 21 393 jobs were created, while export credits amounting to US$11.5 billion and investment credits of US$21.4 billion were achieved.

“The national industrial participation programmes are a monstrous political fraud,” Maynier said last month.

In October last year President Jacob Zuma appointed a commission of inquiry to investigate allegations of wrongdoing in the Strategic Defence Procurement Package. The commission is expected to complete its work within two years.

The Mail & Guardian reported in September that Zuma told the ANC's national executive committee (NEC) afterwards that he had decided to appoint the commission to prevent the Constitutional Court from taking charge of the matter and prescribing the terms of reference for him.

South Africa in 1998 announced that it was to acquire frigates, submarines, helicopters and fighters from a number of European suppliers to rejuvenate the prime mission equipment of the South African Navy and Air Force. Preferred bidders were announced at the Defence Exhibition SA in September that year. Negotiations followed with deals signed in December 1999. The contracts, worth some R30 billion at the time, became effective on April 1, 2000.

The deals would see South Africa gain four sophisticated German-built Meko A200SAN frigates, three state-of-the-art Type 209 MOD1400 submarines (also German-built), 26 Swedish generation 4.5 SAAB Gripen fighter aircraft, 24 British-built BAE Systems Mk120 fighter trainers and 30 Italian-built AgustaWestland A109 light utility helicopters. All of these, except for the last few Gripen, have now been delivered and paid for.

In June last year, Swedish defence multinational SAAB announced BAE Systems had paid Fana Hlongwane R24 million to help secure the Gripen contract. The Swedish company adds that news of the payment was hidden from it by its partner in the deal. Dow Jones Newswires reminded that the British defence giant last year reached an agreement with the UK’s Serious Fraud Office (SFO) over allegations that it failed to provide accurate records in connection with the supply of an air-traffic control system to Tanzania. It admitted the charge and agreed to pay a penalty of £30 million, while the SFO waived its right to investigate other allegations. BAE Systems in June sold the last of its shares in the Swedish defence company.

In August the Süddeutsche Zeitung reported that Ferrostaal, part of the German Submarine Consortium, had made R300 million in “questionable” payments to secure its SA contract. Themba Godi, the chairman of Parliament's Standing Committee on Public Accounts (SCOPA) said the development was startling, given the fact that the Hawks had closed the German arm of the investigation, citing a lack of evidence. "These revelations do indicate that unless this matter is thoroughly investigated, we will continue to have information coming to the public that shows us that maybe our anti-corruption agencies have not been doing their work."